Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 1 - Evidence - Meeting of November 27, 2007
OTTAWA, Tuesday, November 27, 2007
The Standing Senate Committee on Agriculture and Forestry met this day at 7:02 p.m. to study the present state and future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chair) in the chair.
[English]
The Chair: Good evening and welcome to the second hearing of the committee in this new session of Parliament. It comes at a time when the livestock industry is in a very difficult position. Last week we heard from representatives of the cattle sector, who described to us the current crisis they face. In a familiar fashion, the hog industry has faced unfavourable economic conditions during the past months. Hog prices started to collapse in September and reached record low levels. At the same time, feed prices have increased, due in part to the rising demand in biofuels, which supports high grain prices.
With us today from the Canadian Pork Council are Clare Schlegel, President, and Stephen Moffett, Chair of the Canadian Pork Council Safety Net Committee. Also joining us are Robert Monty, Second Vice-President of the Fédération des producteurs de porcs du Québec, and an old friend, Bob Friesen, President of the Canadian Federation of Agriculture.
Stephen Moffett, Chair, Canadian Pork Council Safety Net Committee, Canadian Pork Council: Thank you. Certainly, I appreciate the opportunity to address the committee. As you know, we are facing a crisis. I do not want to sound too dramatic, but it is certainly of unprecedented proportions. I have been farming since the early 1970s and have seen this situation only once before when prices dropped to the point where we do not even recover our feed let alone the money to cover other expenses. This is a dramatic situation in which many producers actually face financial ruin.
The farm business is very different from many other businesses in that the farmer lives right on the farm. Factories, for example, can be shut down and people laid off to draw unemployment benefits until inventories come back in line to allow the business to start up again. With a farm family business, you cannot do that. We are dealing with a live animal, which is a perishable product. It is a long process from birth to market. With this kind of ongoing operation, we are not able to shut the tap off and turn it back on again sometime in the future.
Many other sectors of the rural economy are dependent on our agriculture industry. It not only affects our agriculture producers but also the entire rural economy and, therefore, many more people. We often talk about agriculture's having significantly more spinoff than most other businesses — in the range of 7 to 1. Such a large spinoff has a dramatic impact on the entire rural economy, as opposed to the rest of the economy.
Madam Chair, we have discussed this quite a bit with our producers from various provinces. This is a national situation. We have done a great deal of soul searching over the last period of time. Some people would question, if this situation is as bad as it seems, whether we should be looking for other forms of employment. It is a fair question, but we think it is not likely the case, so we will talk about some of the causes of the downturn.
We have seen downturns in the livestock and hog industry before. It is necessary to recognize that over the last 25 years, Canadian pork producers have grown to be the largest exporter in the world, and the export market for pork will continue to grow. Our indication is that our share of that growing pie will continue to grow as well. There is tremendous demand in the future for our product, but we find ourselves in this short-term crisis with this tremendous drop in price, which is caused by several factors.
The first one we point to is the Canadian dollar. I mentioned the increase in the pork market for Canadian producers over a 25-year period from the 1970s. During that time, the Canadian dollar dropped to approximately U.S.$.60 and then, in a few short years, it rose to above par. Over time, industry adapts to changes in exchange rates, but there is no way that we can adapt to such a rapid change in that rate. That kind of rapid change in the value of the Canadian dollar has never happened before. It has been a great thing for various sectors of the economy, but it is devastating for the agricultural industry in Canada, where we are so dependent on export markets.
The current situation is such that two of every three hogs born in Canada end up as an export product, either as a live animal or as a pork product. So, why not simply reduce the production so that we can increase our price? The reality is that we would have to reduce our production by two thirds to get to the point where we were a net importer of pork, which would have a significant impact on the price of pork and of hogs as well. That obviously will not happen. We have increased our production since 1998 by almost 50 per cent. That implies that we have had tremendous investment in this industry, and we have relatively new facilities. Also, investments in some hog barns run in the millions of dollars. We cannot say, ``let us reduce our production.'' Barns would be reduced to zero value. That is not feasible.
In reality, you get out of the business or get competitive and stay in. We really have only one choice. We have this big machine that is viable and competitive worldwide and obviously it needs to be maintained.
The second thing we point to is the rapid increase in grain prices. As you know, a few years ago grain was very cheap. The increase in demand by the ethanol industry, a large part of which certainly is being driven by government subsidies in the U.S., has put undue pressure on the grain supply. The grain producers are our suppliers, and they have been lured away to sell their product to the ethanol industry. We find it very hard to compete with that. In the short run, that has put dramatic pressure on our industry. We would even suggest that it is unfair pressure: government subsidies are different than normal market forces.
Indeed, there are other pressures on our industry as well. Our packing industry is suffering a lot of stress — again because of the dollar. They are affected in the same way we are. The same percentage of their production goes for export. With the dollar where it is, they have become uncompetitive. Of course, you know how that happens: it trickles down to the primary producer and puts pressure on our price. They are probably suffering as badly as we are in the world market and find it more difficult to compete. There are also other issues around their industry as far as inspection fees. They pay higher inspection fees than their competitors in the U.S pay. That is a different issue.
Suffice to say, there must be some significant changes. There are significant changes happening in the packer industry. We are concerned that once those changes are made, they rely on the primary production to still be there. Obviously, it does not make sense for us to cease the primary production of live hogs. What would our packers do? They are a significant contributor to our economy.
In some parts of the country, labour is extremely difficult to come by. We hear of farmers in Alberta paying $25 and $30 an hour to lure producers away from the oil patch to work on a hog farm. Obviously, their competitors are not paying those kinds of rates. That is a tremendous stress.
We discuss and normally expect to be dealing with these issues, but not so many at once. With so many coming together, we hear comments that it is a perfect storm in the hog industry. That is why we are in the worst situation we have ever seen.
Cash is drying up on the part of hog farmers. According to work we have had done, pig farmers are currently losing something like $65 per animal for every animal they ship. A moderately-sized hog farm could be losing $50,000 to $60,000 per week. It is a tremendous drain. A farmer coming into the situation with any equity at all soon finds it gone and he or she starts to lean on operating lines of credit. When that is gone, the farmer starts to lean on the feed suppliers. With the current situation, we feel if something is not done very quickly, these farmers will not know where to go to buy feed for their animals. It is a crisis situation.
We are looking at ways to deal with this. We have talked to Agriculture and Agri-Food Canada, and we are asking them to do a number of things. First, to deal with the short-term liquidity crisis, we are asking Agriculture and Agri- Food Canada to implement a loan program to give farmers cash to offset the losses. For example, the loan could be the difference between what farmers receive in the market right now compared to a long-term average price. That is made as a loan to producers, who with that cash can pay the feed bill and continue their operation. We would ask the federal government to make an advance to producers based on their 2008 Canadian Agricultural Income Stabilization, CAIS, payment. I will talk about the CAIS program in a moment.
We need to get some cash out to these farmers to deal with the liquidity prices. That needs to be done before Christmas. If we take anything away from here today it should be that farmers need cash before Christmas to deal with the liquidity.
There is also a confidence issue. Producers are looking at this perfect storm and many are saying, ``This is different from what we have seen in the past.'' With the dollar where it is, that will not change anytime soon, and individual producers are saying that they do not see any light at the end of the tunnel. I think there is one there, but it is not apparent right now.
Beyond that, we would like to see an advance made on the 2008 CAIS payment. As you know, with the current programs in place, producers cannot apply for an advance on CAIS until halfway through the year. It would be next summer before a producer can apply and next fall before he receives that money. He will be incurring significant losses in 2008 starting very shortly, but he will not be able to recoup that money for a long time down the road.
That is our biggest request to government. The Minister of Agriculture might say that there are significant programs in place, and there are. However, the consensus in the industry is that the current suite of programs will not deal with this crisis, as deep as it is.
I will talk a bit about the existing programs: CAIS and what we call the AgriStability program. It certainly has and will continue to put cash in the hands of producers. We applaud the government for that, but we do have some serious concerns about the AgriStability program. The program comes very much after the fact. I need you to understand that hog farmers — beef farmers will tell you the same thing — are probably more paranoid than anyone about trade action with the U.S. The U.S. is one of our biggest markets for live hogs and pork. We have gone through trade actions with them before. Therefore, we do not want to do anything significant that will attract further trade action. That is why I told you we were looking for a loan. Normally farmers would suggest an ad hoc payment. We are not asking for an ad hoc payment because it would attract trade action.
CAIS is set up to be relatively trade-friendly to the Americans; it is whole farm, but by nature it tends to be very much after-the-fact. The money we lose from hogs we ship now will not be compensated for until this time next year. It is a tremendous cash flow issue.
We asked the minister first to get the 2006 CAIS payments out as quickly as possible. We think there is some effort to do that. We are asking to please get advances out on the 2007 CAIS payment, and we feel there is certainly a move afoot to do that.
Beyond that, we want to deal with some of the other problems. We have probably talked about them in the past, but we need to take another look at them now because of this deep crisis.
Our industry has transformed itself tremendously over the last few years. Partly that is because farms are becoming larger and larger. Government programs by nature tend to have caps on the amount of money that would go to any one farm. There are political reasons for doing that, which we understand.
However, those caps have a worse impact on our industry than on any other. We have a few large producers who go beyond the cap. They do not get the protection that these programs are meant to give, because they tend to go over the caps.
We have asked before, but now we are saying that we really need to look at these issues. Any farmer who has more than 600 sows will get capped out and will not be protected by the AgriStability program. Worse than that is the AgriInvest program. We do not necessarily oppose the introduction of the AgriInvest program, but it also has a cap and it is much more restrictive than the cap on the original CAIS program or the AgriStability program. A farmer with 1,200 or 1,400 sows will get capped out in the AgriInvest program.
That further exacerbates the second request we have related to AgriInvest. We suggest to the government that we prefer that they do not implement that, or at least give the farmer the choice to stick with the AgriStability program, the old CAIS program as it was, for another couple of years. We are entering into this program in the midst of a downturn. The AgriInvest program is meant to work out over time. From the numbers we have seen, it will do that, but because we are coming into it in the midst of a crisis, farmers will not have that pot of money already to draw on.
In fairness, the first year, for 2007, there is the $600 million kick-start and that will help the smaller farmers. They will probably do as well on the AgriInvest program as they would have on the old CAIS program because they have the kick-start money, but the larger farmer will not because of the cap.
The issue really comes into play for 2008. It looks like we are in a draw situation for 2008, and there will not be the money in the AgriInvest program to do the job for a farmer who would normally have drawn on the CAIS. We are asking the government to allow farmers to have a choice and to delay the implementation of the AgriInvest program for 2007-08.
We are also making a smaller request that farmers be given the choice of the better of the two programs — that when the farmer calculates his CAIS, he compares to his historical margin. That is done now based on the Olympic average and we are asking that farmers be given the choice of the Olympic average or the previous three years. That is acceptable under the WTO regulations and would alleviate some of the criticisms of the old CAIS program, in that it works for some and not others. That is one of the biggest criticisms we hear. This makes it a bit more flexible and hopefully will alleviate that criticism.
Last, but not least, we would like to see some way to deal with the disease crisis we had, especially in Ontario and Quebec, a couple of years ago where farmers suffered significantly as a result of circovirus. You will remember that when we brought in the CAIS program, the indication to livestock producers was that we will bring in production insurance for livestock. That was the commitment. We have had a lot of input into that discussion and we collectively have not come up with production insurance for livestock.
Had those producers had the ability to get production insurance, they would have been compensated for those dramatic losses. That would have maintained their margin for CAIS. Now that they need the CAIS program, they would have had a historical margin to rely on. However, because they did not have production insurance, their margins are not such that the CAIS program will work for them now. Therefore, we are asking that there be an adjustment for that loss related to the circovirus disease.
That sums up our requests. I think it is accepted by the industry that we are in a crisis that we have never seen before. If we could convince Agriculture and Agri-Food Canada to do the programs that we have asked for, I think we would maintain our industry, keep that machinery in place and continue to be one of the largest world suppliers of pork.
The Chair: Thank you very much. Mr. Schlegel, do you want to add anything to that?
Clare Schlegel, President, Canadian Pork Council: Not at this point. I would be pleased to answer questions at some point.
The Chair: Thank you very much. We will move on to Robert Monty.
[Translation]
Robert Monty, Second Vice-President, Fédération des producteurs de porc du Québec: Madam Chair, the United States is currently distributing in our country products that have been processed with standards lower than Canadian standards. We believe that the Canadian Food Inspection Agency is not always taking appropriate measures regarding these imported products. I would like you to take note of this. You will notice that in grocery stores, the origin of most of the products on the shelves is identified, with the exception of processed animal products, or meat. This means that Canadian consumers do not realize that they are currently consuming a fair amount of meat imported from the United States.
Some work should be done to correct this. We are not consuming our own products, and even though we are exporting them, we have problems. They need to be solved.
[English]
The Chair: We will have the final word from Mr. Bob Friesen.
Bob Friesen, President, Canadian Federation of Agriculture: It certainly is a pleasure to be here in support of our colleagues and members from the Canadian Pork Council.
I would like to applaud this committee for jumping quickly on an issue that is urgent. You will recall that the last time I was here, we were talking about thick sugar beet juice; the time before that, it was probably about the problems we had in the grains and oilseed sector.
This time it looks more positive in the grains and oilseed sector. I was just looking at Statistics Canada figures for that sector. Across Canada, there was an increase of somewhere around 29 per cent over the five-year average in receipts. In fact, in Manitoba, it was 85 per cent over last year. Of course, that does not include the 20 per cent increase in fertilizer or the increase in fuel expenses, but it certainly shows a positive trend in that sector.
However, because we are so diversified, while we may be seeing positive signs in one sector, we are seeing a debilitating situation in another sector — the livestock sector, not the least of which is the hog industry. As you know, I can talk at great length about any issue in agriculture, but today I want to commit to the problem we have in the hog industry, because it is a serious problem.
The Canadian Federation of Agriculture, CFA, is 100 per cent in support of what the Canadian Pork Council is asking for. What that means is that a horticulture producer in B.C., a potato producer in P.E.I. or a grains and oilseed producer in Saskatchewan all recognize the crisis in the hog industry and they support what the hog industry is asking for.
Of course, the positive signals we are seeing in the grains and oilseed sector, as Mr. Moffett mentioned, have resulted in escalating input costs for the livestock sector. There has been an 80 per cent increase in the price of barley; in fact in Saskatchewan, it is about 91 per cent. Barley is a major component of feed for hogs.
When the dollar was around 75 cents or 80 cents, our staff calculated that for every cent increase in the strength in the Canadian dollar vis-à-vis the U.S. dollar, it cost Canadian agriculture and the agri-food industry $230 million in export value to the U.S. Do the math on that from the time the dollar was at a level of 80 cents. It is excruciatingly difficult for the agriculture industry, especially given that we continue to export over 60 per cent of our production.
I also want to applaud the Canadian Pork Council for the work they have done in being very deliberate and methodical about what they are seeking. They are not asking for an easy way out. It would be tempting for governments simply to throw money at the problem. However, because of the trade sensitivity that Mr. Moffett mentioned, the CPC has looked at some real solutions that will not raise red flags to one of our major markets. We urge both levels of government to look seriously at the very specific points that have been raised.
For example, we were happy to see what the government did to the top tier CAIS. For the grains and oilseeds sector, it could not have come at a better time. For the hog industry, it could not have come at a worse time. The CPC thought this through and said, ``If we have the option, we can make hog farmers much better off if they can choose which tier they will use, either the old CAIS top tier or the new top tier in CAIS.''
We support 100 per cent what the CPC is asking for. It is critical that there is a quick response time. Farmers need a light at end of the tunnel. They need to see some positive signals, and we would urge a quick response.
It has the potential to destroy the industry. Even more than that, it has the added potential of destroying an extremely important rural infrastructure. Yes, farmers are at the front of this action, but this is also about the men and women who work in support businesses in these communities. They rely on a healthy agricultural industry and the revenue that that industry, in this case the hog industry, generates.
Madam Chair, thank you very much for allowing me to express my support. I am actually a hog producer as well, so it is not just supporting my colleagues, but also begging on behalf of my farm. Thank you for your sensitivity on this issue, and I look forward to the support that you can offer the industry as you continue to do your work.
The Chair: Thank you very much.
Senator Gustafson: This is a very serious problem you face, and it seemed to arise so quickly. That seems to be one of the issues. There is a lot of corn coming in from the United States to the feedlots in Alberta. Is that a possibility for the hog industry?
Mr. Moffett: It is. The price of wheat and barley has increased to the point where those products are being exported and livestock producers are importing corn. It is happening in Alberta, Saskatchewan, Manitoba, Ontario and Quebec. I am in the Maritimes, in New Brunswick, and am now feeding U.S. corn, which seems hard to reason why, but it is the case.
That points out another problem. The ethanol industry is blamed for the dramatic increase in the price of grains, and wheat and barley are an off-shoot. Many people have switched from growing wheat and barley to growing corn, making wheat and barley scarce as well; everything is impacted.
The downside is that the big ethanol plants are in the U.S., and American farmers suffer because corn is more expensive but they gain because they get to feed the ethanol by-product, the DDGS, dried distillers grains with solubles, as a protein feed. Being further away in Canada, we do not get to utilize this feed source as it is a bulkier product to transport, so there is almost a double whammy for us.
Senator Gustafson: There are the plants, the feedlots, and the cattle industry where they utilize a lot of corn. Will that resource run short?
Mr. Moffett: This is one of our biggest concerns. Farmers are a resilient group, and during a crisis period people make switches. In Saskatchewan, they used to slaughter about 2 million hogs, and 800,000 weanling pigs used to go into the U.S. Those numbers are reversing. This trend is happening all across Canada; many of the farmers are leaving their own feeder barns empty and shipping the weaners to the U.S. to be finished. The Americans are growing corn in tremendous amounts and they want our hogs because they use the manure to fertilize the fields to grow their corn.
At one time, the best place to finish hogs in North America was in Manitoba. That has switched now to the U.S. Midwest. There are various issues. We talk about the farm bill and the subsidization of grain in the U.S., which has led to the build-up in grain production. We talk about the restrictions on seed in Western Canada and the inability to grow feed grains with increasing productivity. The Americans seem to grow more bushels of corn per acre every year and we are falling behind. We are not increasing our productivity in grain production.
Long term, the shift in finishing hogs from Canada to the U.S. is a concern. Those hogs, and beef cattle too, that used to be finished in Canada used to consume all that Canadian grain. Mr. Friesen raised the point about spin-offs. If the trend continues, it will also affect the grain producers. If we do not stem this tide, what will we do with all the grain that we have the ability to grow?
Senator Gustafson: My family was in the house-moving business, and we also moved many hog barns in the early 1970s or late 1960s. At that time, they had a good operation, although not as big or as mechanized as those now. Over time, this has been an up-and-down business.
Mr. Moffett: Our industry has grown a lot in the last 20 years, with tremendous growth in the last five years. We have a lot of investment in new facilities, which implies, in theory, that we should be as competitive as anyone in the world. These new barns are $1-million, $2-million and $3-million facilities. Many people have invested in them — farmers, but also banks and other investors. If we lose our production and too many of these facilities start sitting idle, they will eventually become zero value. What do you do if an industry dies and you have barns sitting there worth nothing, not to mention what happens to the packers, truckers and all the other people who rely on that industry? If we do not maintain the industry, our investment becomes worthless.
Senator Gustafson: Are many of your farms diversified? Do some grow grain and raise cattle, or is that only the small hog producer?
Mr. Moffett: I do not know if I can comment accurately but, certainly, there is tremendous variation. Likely the greatest percentage of farmers are land-based because they raise livestock and the manure has to go somewhere. We all tend to be land-based, although sometimes one will have hogs and his neighbour might have the land to make use of the manure. As a whole, we are very land-based.
Mr. Schlegel: You were asking about the movement of grain. I would comment that the increase in grain price is worldwide, so it is not happening only in Canada and the United States but also in Australia and Europe. Europe, Canada, the United States and Brazil constitute the majority of pork exports around the world.
We are not complaining about the increase in grain prices. In fact, we need a very strong production base. What we had seen before was unsustainable, and our grain farmers were not going to survive. That would have been the demise of the hog industry as well. Please do not misunderstand us. When we talk about the ethanol situation, we are talking about the rising cost to produce both beef and hogs without a corresponding rise in the pork price worldwide. We are trying to understand that. What does it take for that price to respond to rising costs and start inching up? The price increase is about 25 per cent in terms of the cost of producing pigs. We are not sure if we have to go through this downturn. The hog cycle is four years, so it is not unusual for prices to go below the cost of production for a period of time and then come back out again.
This fall, prices went down at the same time that the dollar went from 85 cents to $1.10. We saw that happen before at various times in the early 1990s, when the Canadian dollar went up and we went through a low. It triggered a huge problem. In 1998 we did not have the currency issue that we have today, and so now we are facing a double-whammy with the increase in feed costs. Three factors have come together and, in addition, a number of producers have faced major disease problems.
We are not complaining about grain prices, but they are one of the factors. Somehow, the pork price has not found its way back to a new, higher price level, although it will do that in time because that is the way a free market economy works. We think we should be on the other side to reap some of the benefits when we get there.
Senator Gustafson: You have an advantage that the cattlemen do not have — the numbers. You can get back into hogs quicker than they can get back into cattle.
Mr. Schlegel: I believe that the cattle business has a 28-month cycle, or something in excess of two years, whereas our cycle is about 11 months. We cannot store animals, but beef cattle can be stored for at least a period of time, and grain can be stored for one year. We do not have that opportunity. Certainly the Government of Canada supports supply management, which provides a bit of insulation from the world markets. We are not at all insulated and we are benefiting the Canadian economy in terms of balance of trade and of creating wealth around the world. If we are totally exposed to the world reality, we will not exist to help in the long run. We think that is unfair and that it is our time to have a little bit of a shock absorber or a cushion to give us a chance to adjust. We are not saying that we should not be exposed to the world market, but we are saying that we need a little help during the transition.
Mr. Friesen: In some cases, the diversity in hog production and grains and oilseeds production has made what happened in the past five years in the grains and oilseeds sector and what is happening currently almost a more cruel situation. I received a call from a hog and grains and oilseeds producer in Manitoba. I believe he had 800 sows farrow- to-finish and about 5,000 acres. He said that for the last five years, every dollar he made in the hog industry went into shoring up the grain part of his farm. He said that now that the grain price has finally gone up, he is losing $18,000 a week trying to export weanlings to the U.S. It is just a double-whammy for the producers who are diversified in those industries.
Senator Gustafson: Have you looked at the international market and the supplies on hand? Will this situation level out, or are we in it for the long haul? I am talking about the high grain prices that exist in the global market.
Mr. Moffett: I am not an economist but, certainly, we all follow the market supplies. We know that the world grain stocks are as low as they have ever been. I would say there is no question but that the price of grains will stay high for some time for two reasons: not only are stocks lower but also there is an increase. Ethanol is here to stay and more plants are being built. They will continue to turn corn into ethanol. There is talk that in time, some of that will be diverted to more cellulose-type products. The ethanol industry is here for a time so we are likely in a new reality vis-à- vis grain. We have seen this kind of thing happen in the world a few times now. Corn is not the only product. We have seen a tremendous increase in the price of oil, copper, uranium and nickel. Many commodities have jumped to a new level. We saw such a phenomenon after the First and Second World Wars and in the early 1970s. The thinking is that we are probably in a new reality, and we know that when the price of grain increases, a year or so later the price of livestock products will increase as well. That is probably an accepted reality.
[Translation]
Mr. Monty: We could discuss grain products, for they play an important role. However, grain products and animal products are two different things. In recent years, grain producers had problems because prices were too low. Can you imagine what those people would have done at that time had there been no animals to consume their grains? Moreover, what would have happened to the price of grain?
Today, this situation is reversed. We have come here to ask for your help because we have real problems, and urgent ones at that. Indeed, I believe that animal products, such as pork products from Quebec, play a very important role in balancing the local economy, at the rural level and elsewhere as well. They contribute to the overall standard of living.
Here, in Quebec, we process almost all of the pork that we produce. Nevertheless, last year, two slaughterhouses had to be closed down. Our entire hog production is no longer getting slaughtered, and the producers have to deal with the remaining hogs. They have to pay the current prices for feeding them, and the carcasses are downgraded because the hogs are too heavy once they get to the market. This has turned into a very difficult situation.
Today, I am asking you to do something about the problems faced by pork producers. These are the very same producers who have always ensured added value for cereals. They have effectively done this by processing them locally and by creating a green economy, rather than a trucking economy that ships the grain over huge distances to sell it.
I believe that local processing contributes to the green economy because we do not have to spend our time shipping our goods all over the place. We also provide a livelihood for people in the rural areas. Mr. Friesen mentioned this earlier, when he said that rural people, from the small hardware store owner to the farm input supplier make a successful living and contribute to the economy although they live far away from urban centres. They contribute to the national economy.
Currently, we are facing an unprecedented crisis. I believe that if we do not help the animal producers at this time, the grain industries will have problems later on. Ultimately, they will no longer have any clients to consume their products.
[English]
Senator Peterson: You say the situation you are in now is an economic problem, not a structural problem. Could you explain how you see that situation? What will change and bring it out? Will it be higher prices, lower costs, or what turns it around?
Mr. Moffett: We have done quite a bit of soul-searching around that idea, and we ask ourselves whether our helping the producers will just prolong the problem. Or, if we give them a short-term fix, will that get them through until times are better? It is a valid question. Several things are ongoing. We talked about the Canadian dollar, and we do not seem to have influence over that. We would like to see the federal government do something to keep the dollar from being so erratic. It went up to $1.10 just a couple of weeks ago and now it is down to a dollar point something today. A person almost loses confidence in the dollar because you do not know whether to change money today or wait until tomorrow. That is one problem we probably do not have control over. Certainly the price of grains is a worldwide thing and we do not have control over that.
We indicated that the packing industry in Canada is under duress, as well. In Quebec there have been some issues; there are some plants in Quebec that are relatively new, well run and very competitive. However, some plants in Quebec will have to undergo changes. That is ongoing. We know that the large Maple Leaf plant in Ontario is older and needs investment, and work is happening through the Ontario hog board to find new investors and make some changes. I am not sure how that will play out, but there will be some changes and that situation will improve.
There are significant changes taking place now in Manitoba. The big Maple Leaf plant will eventually be a double- shifted plant, modern and competitive with anybody in the world. The largest or second-largest producer bought another plant there; presumably they will do some good things.
A plant was closed in Saskatchewan, and we see many weaner pigs moving from Saskatchewan to the U.S. The indication is that there will be a plant there sometime down the road. I cannot make that prediction, but we know that will change. Either those animals will go to the U.S. or they will be finished in Saskatchewan.
The plant in Alberta has traditionally been competitive and profitable. They tried to go to a double shift but had to abandon ship because they could not hire enough people. We are assuming that situation will change. There are certainly some changes to the laws regarding bringing in immigrant labour, and we support that.
We know that there will be some significant changes in the packing industry. The changes that we are asking for in the CAIS program will deal with the change in our structure, the move to more as well as larger producers, and that needs to be accommodated through the CAIS program.
Mr. Schlegel: Short-term price cycle is bottoming out deeper than normal because of the change in currency on top of the price cycle. We need liquidity help to get through that. Our immediate asks in term of business risk management are help us through, and give us a chance to see where this thing stabilizes.
Six or nine months ago, we knew that Canada in general — not just the hog sector — has to adapt to a new competitive reality with the U.S. We put out a short-term competitiveness document that included structural things that must happen. Some of those are on my farm and some of those are regulatory in nature and are the government's responsibility. Some of them are trade access issues. We cannot tolerate a world where our competitors have better access to Korea, Japan and Europe than we have. It will not work. The general concept is very simple: We cannot be forced to pay more for our inputs and sell our hogs for less. It does not work. Investment will move south.
There are structural things that are the responsibility of industry, as Mr. Moffett was talking about, in terms of processing and of our farms. The hurt to the processors happened earlier in the first wave of dollar increases, but the current hurt moved from the processor to the producer, and it was really focused in September, October and November of this year.
Mr. Moffett: I will add one more quick point about structural change that we are working on. A few structural things we want the Government of Canada to work very hard on have to do with tariffs. Mr. Schlegel mentioned the issue with Korea. As you know, the Americans were successful in getting a trade agreement with Korea, and their pork and beef are moving in there tariff-free and ours are not. That is a major issue for us. The Americans also have an advantage in Russia because they are allowed to sell pork into Russia that can be sold in retail trade and we cannot. We really need the federal government to try to do something about that.
One of the bigger issues that Mr. Schlegel mentioned from a competitiveness point of view is that our industry — and this goes back to government — is unable to buy things like vaccines as cheaply as our American counterparts can. That has to do with regulations. We cannot buy vaccines down there and bring them in. Consequently, the people we have to buy them from are able to charge a higher price and we are at a disadvantage. That is one area.
Another area that we hear from is our packing industry. They pay $20 million or $30 million in inspection fees that their American counterparts do not have to pay. The American government does not charge some of the inspection fees that our government does. We have a cost-recovery program for many services through the Canadian Food Inspection Agency. However, it is not comparable to what goes on in the U.S.
Our industry has to pay that where our direct competitors do not. We are specifically asking the federal government to look into those and we are asking them to drop those. The CFIA would say there is a cost to provide this service. We are suggesting that the federal government needs to step up to the plate and offset those costs.
Senator Peterson: We have been told the old CAIS program did not work very well and the new one is not much better. You are looking for payment based on the 2008 CAIS, though. How much would that be in relation to the $65 per animal you are losing? How much are you asking for?
Mr. Moffett: The $65 that we are losing right now of course is today's price. That is not the average for this year to date, obviously. We are talking about 2007 now; for example, we expect the producers will lose an average of $30 per pig if you look at the entire year, which is somewhere in the vicinity of $700 million. That is when you do the math, including weaners and slaughter hogs — $30 per slaughter hog and something less for weaners. We expect the CAIS program would cover maybe one third of that, so there is a significant shortfall.
The CAIS program obviously is not meant to cover 100 per cent of the cost. It will cover only 70 per cent of the drop in your margin, which will not be your entire loss. It is even a greater shortfall if you are one of the producers unlucky enough to have another crisis like the circovirus.
Senator Peterson: In your industry, there are individual producers and public companies. Do you distinguish between those two when saying we need help, we need support?
Mr. Moffett: When you talk about public companies, I assume you are referring to the large producers.
Senator Peterson: Yes. They are a public company. They have public shareholders.
Mr. Moffett: Some could be public companies and some of them are family-owned businesses. As an organization, we are here to represent those producers as well as the smaller producers. Those producers make a contribution to our industry: they help keep the packing plants full. If we lose those large producers, we lose a tremendous contribution to the rural economy.
Let me comment a little bit further. My farm is not in that category. We have about 5,000 sows but we are probably a smaller version of those bigger companies. My wife and I operate the farm. I have a son and a daughter with me now as well and their families. Our operation is large enough that we are in more than one community. We raise only so many animals in the little village where I live, because we are land-based and because of the manure we use as a fertilizer. As a result, we tend to spread out our operation. Those large guys tend to be that way as well.
There is a lot of discussion around the idea that these programs should deal with units as opposed to companies. As far as we are concerned and the rural economy is concerned, the large corporate farm may have an operation in this village, and the next village down the road would have a separate operation. Each of those hires people and spend money in the various villages they are in, and each of them contributes to keeping the slaughterhouse full and all the employees on the assembly line working.
In answer to your question, we definitely want to see a system that supports agriculture as opposed to a social program that supports the family farm, if you want to call it that. I have no opinion, negative or positive, about the family farm. What I am saying today is that we want to support our agricultural industry in whatever structure it has evolved to.
Senator Callbeck: Thank you very much for appearing. You have described a devastating situation. I think you have described it well, Mr. Moffett, when you say it is a perfect storm.
You have mentioned the importance of getting money into the hands of farmers right away, and have pointed out that the current programs will not deal with the situation we have now. You also outlined what you have requested of the government. How optimistic are you that farmers will get the cash they need soon?
Mr. Moffett: We have certainly made the pitch to Agriculture and Agri-Food Canada, essentially the same pitch you have heard here tonight. We have developed relationships with many people in the agriculture department and have the ability to talk to them from time to time to see what they are thinking, trying to get a little feedback from them as to what some of these programs cost. We know that they have heard our request.
We know that all the provincial ministers met a couple of weeks ago. We know that they are aware and I think accept the fact that we are in a perfect storm — that this is a tremendous crisis and that something needs to happen very quickly. We know their first impression was, ``Let us look at our current suite of programs.'' I think that is fair enough. How much help will come from those and will it do the job?
Beyond that, we have made it very clear that we think there needs to be something over and above the current suite of programs. Whether or not we think the CAIS program was never any good, certainly it does put money into the hands of farmers. However, we are suggesting that in this crisis, that will not be enough.
We have tried to be very reasonable. We have developed a position that is acceptable to every province in our organization. We have tried to develop a position that is trade friendly and doable by the government. Obviously, we will not ask for the moon if we know they cannot deliver it.
We think that what we have asked for is reasonable and doable, and we know they recognize that. Regarding whether they will be able to do what we ask — and we are calling on any support you can give us for that — I am optimistic. We know that Agriculture and Agri-Food Canada is running the numbers, which indicates that they have not turned us down flat. They are looking at the situation and trying to find the most doable way to deal with it. Therefore, my answer is that I am somewhat optimistic, but it is a tall order.
Mr. Schlegel: I would respond by saying I am optimistic as well and encouraged by the response. The one issue is whether we can respond quickly enough in terms of a provincial and a Canadian response, given that the crisis has gone as deep as it has.
I am constantly getting questions now in a way I have never seen before in my career. The producer base is asking us about the tools and the rationale they can to use to make an intelligent business decision about whether to get out. We are facing not only a financial crisis but a crisis of hope for the future, and on what basis do we make decisions? I have never seen that before. They are asking, ``What can we expect? What are the tools in my tool box? What are all the factors I can use?''
Our role, both from an industry leadership perspective and from a government role, is to provide guidance and leadership. To fulfill our roles, we rely on entrepreneurs within Canada to make decisions. That is a tough one.
Even from a leadership perspective, I have struggled personally trying to figure out what the realistic response is. Do I reinvest equity from my farm with confidence that there is a bright future? Or is the right response a pessimistic one, to say this will not work out and I should be getting out? Is it being too optimistic to say this will pass just like every other crisis has passed and there is a bright future here?
We have searched long and hard and we believe the pig industry in Canada should survive and that there is a bright future at the end of the tunnel. We have to get the structural readjustments right and take care of the day-to-day issues; but, worldwide, the demand is growing. In Canada, we have the resource base, the animal health, the land and water, the producers and investment, so we deserve to be here. However, it is a tough one.
We were with the provincial and federal assistant deputy ministers this afternoon, and we are searching hard to come up with a solution. We have committed to trying to be collaborative in the response as opposed to simply a lobby, where industry tries to lobby government. We are very supportive of that. We are hoping we can make this work quickly enough in order to give a response.
Mr. Friesen: I certainly agree with what Mr. Moffett and Mr. Schlegel have said. We need to emphasize yet again that administrative ease not be the only criteria used to determine how the problem is addressed. The government needs to look very closely at the suggestions the Canadian Pork Council has made so that they do not create an even bigger problem and create the potential for trade action.
[Translation]
Mr. Monty: I understand that you can have incentives, but we really need this support. Let me explain why. Every day, producers are telling me that the financial institutions, due to the current crisis, have lost confidence in the production industry. They are afraid of losing money. Quite a few farmers have assets, but nevertheless, the banks are so fearful, that producers who applied for refinancing cannot get it because the institutions have lost their confidence.
These people need a clear message from the government: that the government is behind their production and wants it to continue. That is when the attitude of the financial institutions will change. There are major concerns on the farms today that must be appeased. To do that, governments must send a clear signal showing their willingness to inject money and stating that production will continue and that they support producers. I think that is very important.
[English]
Senator Mahovlich: We should not call this a perfect storm, because with a perfect storm, you do not have a chance. We have a chance here. Together we can solve this. We have some positive thinking here.
You indicated that 50 per cent of the product goes to the United States and Japan. Do we consume the other 50 per cent or export it to Europe?
Mr. Moffett: Probably more than 50 per cent of our production is exported. Our export market is approximately 40 per cent to the U.S., 40 per cent to Japan, with the balance going to about 100 other countries.
Senator Mahovlich: Did you say the balance goes to 100 other countries?
Mr. Moffett: Yes. We consume less than half of what we produce.
Mr. Schlegel: This might sound funny, but we are in the ``de-manufacturing'' business. The way the pig industry works, we are part of globalization. I do not know if it is good or bad; it is the way the world is going. The game we play is to take our pig and cut it into pieces and to market based on cultural preferences to the highest-priced possible market anywhere in the world. Hams tend to go to Mexico. We do not have good access to Europe. That is what we need from this current round of WTO talks because hams are preferred in Europe. That alone could raise the price of every pig in Canada by several dollars.
Senator Mahovlich: Are we competing with the United States there as well?
Mr. Schlegel: Yes. I do not know how many of you like to eat ribs, but Canada is a net importer of ribs, in spite of the fact that we export approximately 60 per cent of the total product. Our preference, compared to other countries, is ribs. The rib is the highest priced product of the pig, bone in, even though probably the best muscle cut is the ham or the loin. That is the way the pig and cattle industries have gone. We have become a global marketplace, and we see the necessity of having trade restrictions and harmonization of standards around the world to whatever extent possible. OIE, which is the World Organisation for Animal Health, is important and the World Trade Organization, WTO, is important. The little blips we see where there is protectionism cause real problems.
Senator Mahovlich: Do we export to China at all?
Mr. Schlegel: Yes. It has become our fourth largest market. We got caught in this crossfire between the United States and China in terms of a product that we use in this country that they do not use in that country. The Chinese situation is an interesting one. About 18 months ago, their pig producers were losing their shirts. Production went down. They also had a disease crisis. Now the price of pork in China has gone sky high to the point where, because of their cultural preference and affinity for pork — they produce and eat about 50 per cent of the world's pork — it has become a poverty issue and a security issue for China.
We have sold the offal and some of the lower-end products to China in increasing quantities. However, there are also muscle cuts beginning to go to China. One of their goals is to increase their per capita consumption by 30 grams, and it is questionable whether China can produce enough of their own meat. It is a huge market.
Senator Mahovlich: The Canadian dollar has not risen as much as the American dollar has fallen with regard to other currencies. I do not know how our government is ever going to control that.
Mr. Moffett: Yes, a big part of the issue is that the U.S. dollar has fallen. On top of that, certainly our dollar has risen and is tremendously strong because we tend to be a resource economy. We sell a lot of oil, nickel, uranium and other commodities that have increased in price, dragging the value of our dollar up.
We had a representative from the Bank of Canada address the CPC because we are concerned about this issue; it is really hurting us. His response was that some of the other sectors who have not benefitted will simply have to adjust. It was frustrating to look around the room and see the faces of these people who were being told they were just going to have to adjust.
Economies do adjust over time, but the dollar has risen so rapidly that we cannot adjust that fast.
Mr. Schlegel: You have identified the light at the end of the tunnel. Because of the weak U.S. dollar, U.S. industries are now able to export. It is not only the Canadian pig industry that is hurting: the European and Australian pig industries are also hurting. The Brazilian soybean and hog farmer is having a difficult time as never before. All of this is because of the weak U.S. dollar. Supply and demand will work. We know pork producers are going out of business in various places around the world, and we want to be here at the end as pork prices adjust worldwide so that we may continue to provide our resources within the Canadian economy.
Senator Mahovlich: Can we increase grain production in Canada? Our land is vast, especially in the West. Can we produce more corn? Can we compete with the United States?
Mr. Moffett: I would say the answer is yes, because there is no doubt that the corn belt is ever expanding. Years ago, corn was grown in the Midwest, then in Ontario, and as seed varieties got better and better, it was being grown increasingly in Quebec. I grew corn in New Brunswick 20 years ago but it was very marginal. I am growing new varieties of corn now and find that I can rely on a crop every year. We have seen corn production expand into Southern Manitoba and Southern Alberta.
Yes, we can grow more corn and we can likely grow more wheat and barley. By way of a simple request to the federal government, we need to deal with the issue of not being able to improve our feed barley and wheat varieties because of the issue around western grains. We are not able to use some of the new, higher-yielding varieties of wheat and barley because of the restrictions in place that apply in Western Canada. That needs to be dealt with.
As I mentioned earlier, the American farmer's productivity goes up every year. They reap more bushels per acre year after year. The graph shows a steady increase, and we are not seeing that in Western Canada. Certainly, we are seeing improvements in the areas where we grow corn, although we probably do not get the corn yields in many areas of Canada that they would get in Iowa or Illinois. However, I hear stories that the corn production in the Ottawa area this year approached 5 tonnes per acre. So, I would say the answer is yes, although we need to deal with the restrictions on western grains.
Senator Mahovlich: I have a question for Mr. Monty with respect to processed meat imported into Canada. I did not realize it before, but I have learned that the meat is not identified. When I buy processed meat, perhaps the Maple Leaf or Schneider's brand, is it from Canada?
[Translation]
Mr. Monty: Significant quantities of meat are currently being imported from the United States. There is more and more pork in the grocery stores. However, consumers do not realize that it is pork from the United States, because the product is not identified. Some grocery stores go as far as removing the American label if it is too visible and replacing it with a less visible one.
It is obvious that if I were to ask you whether you preferred Canadian or American pork, the answer would be clear. Pork produced in Canada must meet strict requirements. Consumers are unaware of that fact, as they do not see the labels. So without realizing it, they are buying more and more pork produced in the United States. Sometimes, if you look closely, you can see in very fine print that the pork has been produced outside Canada. The act should require that meat be labelled the same way as other products are.
Prices are on the decline. Our processors are having difficulty with processing and remaining competitive.
Moreover, this year, our American neighbours have produced a large volume of pork, which has led to a surplus. They are dumping the product at a discounted price, which is attracting our supermarkets.
In my opinion, it is crucial for meats to be labelled in Canada, as are other products in the grocery stores. At present, that is not required, but that oversight is very costly for Canadians.
We are seeking your support, whereas you are supporting American producers by buying their pork. I do not know if you are aware of the scope and consequences of this situation. We do not always help each other, but people cannot help when they are unaware of a situation.
[English]
Senator Mahovlich: Thank you, I agree.
Mr. Schlegel: I will provide a couple of figures to back up Mr. Monty's comments. The pork imports from the U.S. increased by 31 per cent, according to the most recent number. From a Canadian consumer perspective, if we go back 10 or more years, for every 16 kilos that we exported, one kilo was imported. Today, the ratio is almost one to three. It is part of the globalized world, but it cannot work if we do not have access to our inputs on the farm that is similar to what consumers have in respect of accessing products from around the world.
Senator Gustafson: We have just become used to the free trade agreement and now we are moving quickly into a global economy. It appears that we have not made that move fast enough, especially from the sales perspective. How do Canadian pork producers sell their commodity? Do salesmen travel the world or do you leave it up to the packers? How do you handle that?
Mr. Moffett: That is an interesting question, Senator Gustafson, and the answer is fairly clear: we leave it up to the packers. In general terms, the packing industry in Canada is not owned by the farmers. That being said, a few packers are individually farmer-owned. Maple Leaf, for example, is one of the largest farmers that owns the packing industry. In Quebec, two or three are similar. We mentioned that a high-tech company bought the plant in Manitoba.
For the most part, there is a separation between the packer and the farmer so we truly rely on the packer as a partner and as a salesman. We partnered with the packing industry to set up Canada Pork International, which has been in place for a few years. As the industry increased its exports, we looked at the state of our industry and found that three quarters of our exports went to the U.S. market. Of course, the U.S. market is a concern because they tend to be highly critical and tend to put countervailing or dumping duties on us. We went through that process and, therefore, made a conscious decision to invest in Canada Pork International to try to diversify our market.
Through CPI, we have tried to open up markets in Japan and 100 other countries. Our main effort at Canada Pork International is to open up markets and to deal with issues so that we can sell in other countries. The actual salesmanship is left up to the packer. They are the ones who produce pork and they are the ones who have the facility to actually make that sale.
Senator Gustafson: I have followed the grain market more closely than the beef market, but it seems that, every once in a while, the Americans beat us out of a pretty good deal somewhere. Perhaps we are not moving in the sales end of our products to the extent that we should be in Canada.
Mr. Schlegel: Let me further explain how we respond in the world environment. We truly do depend on signals being sent back through the chain. Most packers simply process product here. Then we rely on specialized traders. For instance, there are firms that have a presence in Russia; they know the market, they source the product and move it through. There are traders who specialize in China. There are few of our processors who have a strong export team in various markets because it is so specialized. The world is so diverse. It is the most efficient way of doing that. Frankly, we have been quite successful.
Saying that, we must compliment Foreign Affairs and International Trade Canada and the whole export arm because we have a very close working relationship and that helps to open up markets. Opening up markets requires veterinary equivalency, et cetera. I could go on at length here. We have been quite successful in diversifying away from the U.S., and it is a very close working relationship. The Korea situation is so important because there are certain roles and responsibilities for government there. The industry follows after. We know there is a huge potential, strangely enough, in high-end restaurants in India. It is not because they eat a lot of pork but because of the volume of people and the way things are trending. There is a wonderful opportunity there. Singapore is an emerging market like Japan was a few years ago, but it takes a dedicated combination of industry and government to penetrate and open those markets.
Senator Gustafson: The U.S. is very dogmatic in that they do not like anything government controlled, as you know. However, they really back up trade; there is no question about it. They will say that trade is a two-way street. If you open the doors for us, we will open the door for you. Canada does not operate that way. I will not get into the details, but you know what they are. I think we will continue to have problems until we can overcome some of these issues.
How are the hog producers in the United States doing? Are they in the same trouble our Canadian hog producers are in?
Mr. Schlegel: Our current losses are about $65, but because of the change in the dollar, they are probably losing about $25 or $30. They are losing, but not as deeply as we are.
Senator Peterson: You mentioned the legislation regarding country of origin. I think we do have legislation in Canada, but it is not very good. It is my understanding that the Canadian content can be less than 15 per cent, and you can still label the product as made in Canada. There are problems there, but that is an aside.
You talked about the WTO, hoping it would gain you market area. Do you think you can wait for that, or should our government be making one-off bilateral agreements with these countries to get access to places like South America and Southeast Asia?
Mr. Schlegel: Those are longer-term issues. That is not a solution to the immediate liquidity issue, but it is an area of concern going forward.
We believe that if we do live in a globalized world, we have to be committed to a multilateral trading platform. We cannot afford to allow our direct competitors, in this case the U.S., to have better access than we do to Korea. That is suicide from a preference perspective. We cannot afford to have other countries to have better access to Japan, the world's largest importer of food and meat in particular. Most recently, the U.S. may have wrapped up a deal with Korea and we have not been successful in that. We certainly are supportive of free trade agreements in specific situations, but that is not the long-term direction we are heading in to make a globalized world work.
Senator Peterson: You must gain access to those markets first. You are shut out now. Americans can go in and you cannot.
Mr. Schlegel: We do have access to Korea currently. If you use Korea as an example, in previous years we have had equal access as the U.S. The U.S. has completed a deal with Korea and it is a 15 per cent tariff that will be eliminated over five, 10 or 15 years for the U.S. In those situations we absolutely agree with you.
Senator Peterson: I have a question regarding the costs you have no control over. In your industry, are you able to do hedging on foreign currency exchanges? Can you do forward contracts on feed that will take you out a year or two in order to get a number that you can work with? Is that being done or can it be done?
Mr. Moffett: It is being done and it can be done. It is a little more challenging for us than for the Americans because those futures markets are in the United States. Certainly there are opportunities for farmers to hedge their grain. You can hedge your grain on the futures market, like you suggested. Many farmers, especially smaller farmers, would hedge by going through the feed companies themselves. Sometimes feed companies will offer a contract price and they would offer a flat price to various producers. They, in turn, would hedge themselves on the futures market. That works very well.
There are programs through some of the marketing boards in some of the bigger provinces in Canada where the producers can lock in their price. Again, the marketing board or the packer would in turn hedge on the futures market. Opportunities like that are available to producers who are shipping hogs down to the U.S. Very often there are long- term contracts, with a finisher for a weaner, for example, or for the market hog to the slaughter plant where you can lock in your plant. Again, that slaughter plant, in turn, would hedge their bet on the futures market.
In the U.S. more so than in Canada, we hear numbers like 85 per cent of the hogs sold in the U.S. are being sold under long-term contracts where there would be some sort of pricing mechanism in place. Producers are able to get locked-in prices, though likely less often than used to be the case, but they will have locked-in formula pricing which will still fluctuate with the market.
The answer to your question is that there are many different opportunities to alleviate risk. As I indicated earlier, we have asked for the program that we have because it still allows the producers any option that he has open to him to mitigate risk either on the supply side for his grain or on the sale side for his livestock products.
Senator Peterson: There is no question the industry has to be supported. It would be a tragedy if we had to rely on the rest of the world to feed our people. It would not be a good situation.
Senator Callbeck: I have a quick question on the increased consolidation and processing in the retail sector that we are experiencing. What impact is that having on the producers?
Mr. Moffett: Are you talking about the increased amount that we process our food?
Senator Callbeck: No. The big companies are becoming bigger and bigger. Does that have any effect on producers?
Mr. Moffett: That is an interesting question. When I started in the 1970s in the province of New Brunswick, there were seven packers that bought pigs from our marketing board. Over the years, we saw that number dwindle to five, then to three, and at some point, there were too few even to have an auction. Many years, we just had one, and in fact now there is not any in New Brunswick.
That kind of story has gone on everywhere. In many other industries besides ours, you get fewer facilities and they get bigger. That implies that they become farther in between.
The impact that has on us on the upside is that as these packers become larger and more efficient, in theory they should be able to pay us more for our product. It is debatable whether that has gone on.
Certainly the impact on us is that the transportation costs increase. Where I used to haul my product half an hour to an hour to get it to market, now I have to haul it five and a half hours to get it from my farm to market. That has happened all across the country. We have many fewer packers, which means on the whole that our transportation costs are higher. The upside should be that our packers are becoming more efficient.
Mr. Schlegel: It is a fascinating question, and we tend to come out on the side saying it is a bad thing. It is bad in certain respects, but in other respects it creates an opportunity for the smaller niche players — specialty processors who can cater to a specific need.
When you think about the game we play in general — globalization, technological advancement — in a free market economy, you must compete. Competition means that things change and you adapt; you make use of technology and you do what you can. It drives the cost down to consumers.
We have been on this path of becoming more efficient and effective, trying to have a chance to compete globally. You almost need the megaplants; and by having megaplants, you create opportunities for others who cater to Omega- 3, or natural or organic products or what have you, so it is a very difficult question.
It means that if certain things happen — plants go on strike, labour disruptions, whatever — there is a problem. In the old days in Ontario, we had 16 processors. If there was a labour issue in one, it did not matter much. Today, the big plant does almost half the animals, so all of a sudden you are shipping the animals in a bad situation right across the continent.
Senator Mahovlich: I was in Brandon 20-some years ago and the cattle farms were turning into hog farms. It seemed like the capital of hog farming was going to be Brandon, Manitoba, and it was affecting the environment. I hear that Denmark and the Netherlands have developed an environmentally friendly technology and are considered leaders in that field. How are we doing? Are we polluters or are we environmentally friendly, and can this crisis help us right now?
[Translation]
Mr. Monty: As I mentioned earlier, with all of the environmental criteria that we have for pork production in Canada, we have virtually exceeded European standards. In Europe, requirements for animal production and grains are based on volumes of nitrogen. In Canada, these requirements are based on volumes of phosphorus. You often hear talk about water pollution based on the phosphorus standard. We do not really talk about nitrogen. I do not really believe that environmental standards for production in Denmark and Finland are stricter than ours. I would even say that ours go farther. We truly target products that affect water quality. Europe targets nitrogen; there is still no talk about regulating phosphorus, but that is what affects water quality.
Having said that, several environmental studies are under way. Many people measure the quality of the environment by its odour. Odours are bothersome, but are they really pollution?
Quebec has very strict production criteria. Pork producers are closely monitored. We keep track of the phosphorus balance and have been doing so for 10 years. I have been a pork producer for 20 years, and I am proud of that. My logbooks speak for themselves. It is a matter of respecting human beings.
Bear in mind that at all levels of society, regardless of the sector, there will always be people who do not respect the standards. The issue of drinking and driving is a well-known example, we keep talking about it, but it is not unanimous. The same thing occurs in animal production, not everyone is perfect. For the most part, I am not afraid of boasting about producers' merits.
[English]
Senator Mahovlich: Very much so. I feel much better.
Mr. Friesen: Brandon is in my backyard, actually. If you have been in Brandon, you know there is lots of room out there. The hog production we have is not even close to becoming an environmental problem.
Let me just say what I said in response to an environment committee a while ago on the issue of blue-green algae. Fertilizer is imperative, and animal nutrients are inevitable. Farmers are quite willing to practice due diligence. They are much better at soil testing, no winter spreading and providing the adequate buffer zones, and they are willing to be responsible and accountable.
Part of the problem is making sure that we continue the due diligence and communicate it. Only 11 per cent of people living in rural areas are actually farmers. The rest are what we call urban rural people.
With regard to environmental farm plans, farmers are right there. We have had great pick-up on that. We are a long way, I believe, from farmers creating an environmental problem, especially if you consider the amount of raw sewage that is being pumped into our waterways as a result of cities.
The Chair: Thank you very much to our visitors. This has been quite an evening. You have opened many doors. Speaking for myself, but I think for my colleagues as well, you have taken us on a very difficult path. We have not had an opportunity until now to get a good picture of a very difficult issue. We want to thank all of you for taking the time to come here tonight, and most particularly for the generosity of your responses.
Honourable senators, I want to say thank you for your questions as well. This has been a very good session.
The committee adjourned.